From Bloomberg:
Technology News
Fri, 04 Jun 1999, 11:47pm EDT
AT&T Must Allow Internet Rivals on Cable System in Oregon, Judge Rules
By Colleen McElroy
AT&T Must Allow Rivals on Cable System, Judge Rules (Update5)
(Adds background and details.)
Portland, Oregon, June 4 (Bloomberg) -- AT&T Corp., the
second-largest U.S. cable-TV operator, must allow competitors
such as America Online Inc. to use its cable-TV networks in
Portland and Multnomah County, Oregon, a federal judge ruled,
sending shares of Internet service providers higher.
Earlier this year, Portland-area officials approved the
transfer of Tele-Communications Inc.'s cable-TV franchise to AT&T
on the condition that TCI's cable system be opened for use by
outside Internet companies. TCI, which AT&T bought for $59.4
billion in March, and AT&T sued to overturn that condition.
''The open-access provision is within constitutional power
of the city and county. It furthers the substantial interest in
preserving competition,'' U.S. District Judge Owen Panner wrote
in his opinion. If Panner's ruling stands, it may set a precedent
that could make it easier for municipalities to require AT&T to
open up its broadband cable domain to rivals nationwide.
AT&T Vice President Mark Rosenblum called the ruling
''inexplicable'' and said the court went beyond its jurisdiction.
AT&T will appeal the ruling, although Rosenblum declined to say
when the appeal will be filed. AT&T held a conference call with
analysts, and said it expects the ruling will be overturned.
Shares of America Online surged 12 1/4 to 118. MindSpring
Enterprises Inc., which provides Internet services, rose 14 to 79
5/16. AT&T fell 7/8 to 53 3/8.
Will Ruling Stand?
Several analysts said they believe the ruling will be
overturned. Kim Wallace, chief political strategist at Lehman
Brothers Inc., said the Federal Communications Commission could
join AT&T's appeal. The FCC, which is charged with enforcing the
1996 Telecommunications Act, didn't place similar open-access
conditions on the 1999 acquisition of TCI by AT&T.
''It's highly unlikely that a lower-level court judge has
the same level of knowledge and expertise about the 1996 Telecom
Act'' as the FCC, Supreme Court and appeals courts do, he said.
''The FCC didn't condition the AT&T-TCI (union) for two reasons:
It will promote local phone competition, and the FCC didn't want
to stifle investment in new technologies.''
AT&T's competitors -- including No. 1 online service AOL and
other Internet service providers -- want open access, which would
allow them to transmit their information offerings over AT&T's
cable networks for a fee. Excite At Home, which offers high-speed
Internet access through cable-TV lines and is majority-owned by
AT&T, might be forced to allow rivals on its network.
Shares of Excite At Home, formed by the merger of Web-based
online directory Excite Inc. with high-speed ISP At Home last
week, fell 10 percent, or 10 3/4 to 94 1/2, in trading of 11.4
million, three times its three-month daily average.
''It's clearly unfavorable if you're AT&T. There's no way to
think this is good news for At Home,'' said John Corcoran, an
analyst at Stephens Inc., who rates At Home a ''buy.''
Bundled Services
If AOL obtained open access, it could bundle its online
service on the cable companies' network with the AOL brand,
presenting a seamless Internet access and online service under
the AOL name. Consumers would never know that AOL rented cable-TV
lines from AT&T or other cable operators.
Excite At Home, which has exclusive agreements with cable
operators Tele-Communications, Comcast Corp., Cox Communications
Inc. and others, already offers its own online service with its
high-speed Internet access through cable-TV lines. It wants
consumers to pay a premium for AOL's online service, which
consumers would receive in addition to Excite At Home's service.
''It's clearly the first substantive chink in the armor of
the cable case,'' said William Blair analyst Abhishek Gami, who
rates America Online a long-term ''buy.''
So far, America Online, MindSpring and other Internet
services have joined telephone companies to offer fast service
over phone lines, called DSL. Currently, subscribers to cable-
Internet providers have to pay AOL separately for its content and
services.
Internet Via Cable
Some analysts expect Internet-cable service to prove more
popular with consumers. Cable-based Internet providers are
projected to have 13.6 million subscribers in 2002, up from
700,000 last year, according to Forrester Research, a Cambridge,
Massachusetts-based market research company. Fast online
connections over phone lines will be just a fraction of that,
increasing to 2.2 million subscribers in 2002 from less than
200,000 last year.
High-speed connections using both cable and phone lines will
account for 26 percent of the market in 2002 from 2 percent in
1998, Forrester said.
The judgment raises the uncertainty level for AT&T, said
Robert Wilkes, an analyst at Brown Brothers Harriman. ''It also
raises investor anxiety that AT&T might have to open up their
network to competitors'' nationwide, he said.
Wilkes said the ruling is one step in the legal process.
''If I were an AT&T investor, I wouldn't be unduly concerned at
this point,'' he said.
A spokesman for the FCC declined to comment because
regulators didn't have time to review the decision late today.
Consumer Groups
Consumer advocates cheered the ruling.
''This should encourage cities to demand open access for the
citizens,'' said Gene Kimmelman, co-director of the Washington
office of Consumers Union. ''It demonstrates that there's a
strong legal basis that even the smallest of cities can take on
the new giant in cable TV, AT&T.''
AT&T's reaction to the ruling is ironic, said Jeffrey Kagan,
an independent telecommunications analyst based in Atlanta.
''They've been clamoring for open access to the (regional
Bells') networks for years,'' he said. ''Now that competitors
want to use their new networks, they complain.''
AT&T said the ruling won't affect it's current cable-TV
operations in Portland. The ruling only applies for high-speed
Internet access services, which AT&T doesn't currently offer in
that area. Rosenblum declined to say when AT&T would offer those
services.
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